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This Little-Known Conglomerate Could Make You a Fortune In 2022 and Beyond

We all know about Warren Buffett, the Oracle of Omaha, and the returns he has produced for shareholders in Berkshire Hathaway (NYSE: BRK.B) over the last 50 years. That stock has returned more than 3,000,000% since 1964 when Buffett took over the original company's business operations.

His success has also attracted an army of investors who adore Buffett's capital allocation style, making it one of the most popular stocks for investors even in 2022.

But given Berkshire's enormous size and maturity (its market cap is over $700 billion), some younger investors looking to build their nest eggs over the next few decades might not be as attracted to it as an investment.

Enter InterActiveCorp (NASDAQ: IAC). The internet-focused conglomerate has put up better returns than Berkshire Hathaway since its inception in 1995, has a much smaller market cap of $12 billion, and is currently trading at a discounted valuation.

Here's why investors should consider buying IAC in 2022.

Image source: Getty Images.

What is IAC?

IAC is a holding company started by Barry Diller back in 1995. Originally called Silver King, the company started out investing in internet and entertainment businesses, eventually building up and spinning off businesses such as Expedia, TripAdvisor, and Live Nation Entertainment. More recently, it spun out its highly successful Match Group and Vimeo units.

These moves highlight IAC's core strategy. Unlike Berkshire Hathaway, which rarely sells the companies it owns, IAC prefers to acquire assets, incubate them, provide them with the benefit of its decades of expertise in building internet businesses, and then spin them back out as public companies once they are large and stable enough to operate on their own.

Currently, IAC's holdings include a more than 80% stake in Angi, a $2.5 billion stake in MGM, a 27% stake in start-up Turo, and a catalog of wholly owned businesses that includes Dotdash, Care.com, and many smaller operations. Lastly, as of the end of Q3 2021, IAC had approximately $3.4 billion in cash -- a large bankroll that gives it the flexibility to make more investments or acquisitions if it finds attractive opportunities.

The Meredith Publishing deal was a smart buy

Speaking of acquisitions, IAC recently closed on its $2.7 billion purchase of Meredith Publishing. It financed that deal with $1.6 billion in debt and $1.1 billion in cash, so the move depleted a good amount of IAC's cash pile. The debt, however, will be held by the combined Dotdash Meredith subsidiary, a tactic that gives IAC more flexibility at the parent company level to continue making investments.

Meredith Publishing is the owner of many magazine and website brands, including People, Better Homes & Gardens, and Southern Living. It will combine with Dotdash's current publishing assets, which include Investopedia, The Spruce, and TripSavvy. IAC's thesis for the acquisition is that it can easily improve Meredith's websites by using the same strategies it has used for those operated by Dotdash. This includes improving site speeds, reducing the overall advertising load, and increasing commerce and performance marketing campaigns.

That playbook has helped Dotdash grow revenue at a 32% compound annual rate since 2018, hitting $264 million in revenue and $88 million in adjusted EBITDA over the last 12 months.

Better than Buffett and trading at a discount

What excites me about an investment in IAC is the company's strong track record and the stock's relatively cheap valuation.

Since 1995, when IAC was started, the company's total annualized return for shareholders (including spin-offs) has been 15.3%. That compares to a 10.4% return for the S&P 500 and an approximately 12.6% return for Berkshire Hathaway over the same period. Given its smaller size and expertise in internet businesses, it is not a surprise that IAC has even beaten the Oracle of Omaha over that span.

I believe IAC can continue to deliver similarly strong returns for shareholders in 2022 and beyond. If you ex-out its minority holdings in publicly traded companies (Angi, MGM, and Turo) as well as the cash and debt it will have across its various companies, the company has an enterprise value of $5.5 billion. Over the last 12 months, revenue from IAC's wholly owned businesses (Dotdash, Care.com, etc.) plus Meredith was $3.7 billion. That gives the stock an enterprise-value-to-sales ratio of approximately 1.5.

Given that these businesses have high profit margins, this indicates to me that IAC's wholly owned businesses are being undervalued by investors at the moment. For anyone looking for a great conglomerate to own in 2022 and beyond, now could be a fantastic time to scoop up shares of IAC.

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Brett Schafer owns Match Group. The Motley Fool owns and recommends Berkshire Hathaway (B shares), Match Group, and TripAdvisor. The Motley Fool recommends Live Nation Entertainment and recommends the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), short January 2023 $200 puts on Berkshire Hathaway (B shares), and short January 2023 $265 calls on Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.


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